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Data for better tax policy analysis

Thanks to the updated version of the Government Revenue Dataset (GRD) we are now able to gain a clear picture of tax and other revenue trends in over 190 countries over the past four decades, up until 2018. The GRD remains the most complete source of cross-country revenue data available. With the newly updated visualization tool, it’s also possible to explore the data interactively.

Strengthening the capacity of developing countries to collect public revenues is key to sustaining investments in inclusive growth and improved social services. While the GRD has been used extensively to address questions surrounding the impact of taxation on economic and social development, new possibilities arise as we gain more, better data. Furthermore, the GRD serves as a key resource for understanding the effects of economic shocks and policy changes on tax revenue collection.

The latest update to the GRD provides data up to the year 2018 (where available), meaning that – depending on the country in question – there is almost four decades worth of observations available for analysis. The user-friendly interface of the GRD Explorer tool makes it easier than ever to access the data.

Recent trends and developments

For many developing countries, thanks to efforts by the OECD and IMF, data coverage has significantly improved and we are now able to gain a more complete picture of trends in the past few decades. Take, for example, Sub-Saharan Africa (SSA), the region with historically the lowest amount of tax collected – on average – as a share of GDP.

In a UNU-WIDER webinar last year Professor Mick Moore alluded to the fact that revenues – as a % of GDP- in many SSA countries have recently been “Somewhere between stationary and increasing very slightly”. New figures from the GRD show that while average tax revenues in SSA increased from 12.2% in 1998 to 14.8% in 2008 (an average increase of around 21%), the pace of progress has been somewhat slower in the most recent decade, with the figure in 2018 standing at 15.4% (representing an average increase of 7%).

Whilst it remains to be seen how the fallout from the COVID-19 pandemic and resulting economic downturn will affect the trajectory of revenues in the coming years, the opportunities for further growth in revenue collection are now likely smaller than otherwise would have been the case.

The visualization below illustrates the taxes collected as a % of GDP across regions since the late 1980s. Naturally, there are myriad explanations as to why this trend in Sub-Saharan Africa is emerging. If you’re interested in a wide-ranging discussion of the issues at hand, you should definitely watch the video of Professor Moore’s webinar, where a number of suggestions for how to improve revenue collection were broached.

Of course, tax ratios are certainly not the only useful metric when assessing performance of a tax system, but they do provide a useful snapshot of broad trends over an extended period of time. The slowing average rate of increase in tax as a share of GDP suggests that further, sustained improvements in revenue collection going forward may require different solutions and approaches.

The curtailment of wasteful tax exemptions, better governance of tax expenditures, more effective taxation of high-net-worth individuals or innovative approaches to taxing property and land use are just some means by which countries may turn to bolster their revenue collection efforts in future.

The GRD and COVID-19

As the most complete source of cross-country tax and revenue data, the GRD will naturally be an important tool to inform analysis on the fiscal impacts of COVID-19 in years to come. Unfortunately, the extent to which it can be used for rapid assessment of the fallout, or economic recovery, is limited. Revenue statistics such as those presented in the GRD typically take some time to be updated because many taxpayers file and make payments long after a financial year has ended. 

If you’re keen to use the GRD to gain a cross-country snapshot of effects of COVID-19 and associated lockdowns on tax revenue collection, then set a reminder to check back in 24 months’ time. The true extent of the unfolding crisis on tax revenue collection cannot be fully known at this point and, in fact, where revenues are expressed as a percentage of GDP, as in the GRD, it might well be that the ratios don’t contract all that much (although, the IMF is suggesting that there will be “significant declines” on average). 

However, the GRD does contain a myriad of relevant information that can aid our understanding of the likely medium- and long-term effects of the fiscal crises unfolding across the globe. With data for most countries since 1980, the GRD allows us to study if, and how, tax collection suffered during previous shocks, be they pandemics, natural disasters, or episodes of violent conflict. Similarly, it can usefully be employed to study the likely trajectory of revenues in the recovery period, with the caveat that the severity of the COVID-19 crisis almost certainly dwarfs anything else in recent memory.  

While the GRD can’t yet be used to analyse the impact of COVID-19, the pandemic has impacted the update of the GRD itself. With fewer IMF Staff Reports released than usual in 2020 (just 38 up to mid-October, compared with 91 for the same period last year), there is now less new data on hand than usual. It is expected that these backlogs will continue to affect the production of underlying source data for some time going forward.

In the meanwhile we continue our work, to provide the most comprehensive and useful revenue dataset to inform policies for inclusive development. Some of the recent publications making use of GRD include a World Bank blog, and a WIDER Working Paper on the fiscal resource curse and the impact of China.